By Blake Briggs, CEO of the FSC
Financial advice delivers a direct, tangible benefit to consumers, and the failure of the current regulatory framework to deliver affordable advice on the topics consumers need is causing financial harm to millions of Australians.
Michelle Levy’s Quality of Advice Review’s final report, released by the Assistant Treasurer this week, has provided the Government with a comprehensive road map to providing good advice to more consumers within a strict consumer protection framework at a cost that ensures financial advice is not priced out of the reach of all but the wealthiest Australians.
The scare campaign about a return to the ‘bad old days’ of conflicted advice that failed to put consumers' interests first is dead on arrival due to Michelle and her Treasury review team's thorough analysis.
A decade of financial advice regulation has been painful, and Financial Services Council research has shown that regulation has driven the cost of providing advice to over $5000. Reform has established the advice profession that we see today—an industry that deserves a regulatory framework that trusts advisers’ professional judgement.
Michelle analyses in detail how her approach would give advisers latitude to provide consumers with advice on the topics they need at the points in their lives when they need it, within a robust consumer protection framework.
The 267-page final report clinically outlines the consumer protections that should dispel the ghost of ‘dodgy’ financial advisers from this debate once and for all:
- Financial institutions must act efficiently, honestly and fairly in giving advice;
- Superannuation funds must act in the best financial interests of their members; and
- The law prohibits the unsolicited ‘hawking’ of financial products.
ASIC’s new Design and Distribution Obligations are also a game changer. Financial institutions are now required to design and distribute financial products only if they are likely to be suitable for their customers, and ASIC is not hesitant to exercise its new powers under the regime.
Michelle also proposes introducing new consumer protections by expanding what constitutes personal advice and creating a ‘good advice’ duty to ensure advice is ‘fit for purpose’. The report exorcises stakeholders who have argued the current best interest duty should be retained by pointing out that the ‘safe harbour’ attached to the current duty is no more than a tick-the-box exercise.
The move to a ‘good advice’ duty draws on the work of Commissioner Hayne’s Financial Services Royal Commission and would align the advice framework with legal protections in the Australian Consumer Law.
Michelle also resolves the uneasy relationship between the financial advice industry and superannuation funds. By expanding the range of topics on which a superannuation fund can provide advice for its members and allowing consumers to direct their superannuation fund to pay advice fees to an independent adviser from their superannuation savings, Michelle has put the interests of consumers first by allowing the consumer to decide who is best to provide them with the advice they require.
Extending more choices to consumers will drive competition in the sector, forcing all providers to improve the quality of their services, develop digital solutions, and put downward pressure on advice fees.
Taking a step back, Michelle’s final report starts with a straightforward first principle: consumers make better financial decisions after receiving financial advice.
There are many times in a consumer’s life when they could benefit from advice, be it when they are investing their superannuation, transitioning to retirement, or taking out insurance when they buy their first home.
There are only 16,000 financial advisers in Australia, however, and about 25 million Australians. There are too few financial advisers to provide financial advice to all consumers who would benefit from it.
The regulatory framework urgently needs wholesale reform to deliver low-cost advice at scale. This can only be achieved by encouraging more qualified Australians to aspire to become financial advice professionals. In contrast, we encourage institutional players to invest in their service offerings and recruit and train new advisers.
The Quality of Advice Review final report presents the Assistant Treasurer with an unprecedented opportunity to fix what he has identified as the “hot mess” of financial advice regulation. The Assistant Treasurer has been clear that he understands the industry's frustration with not being able to meet consumers’ needs.
The government’s commitment to consultation is an important first step now that the final report has been released. However, the Assistant Treasurer must prioritize implementing Michelle’s recommendations to keep faith with the industry and deliver on its potential to improve the financial well-being of millions of Australians.
This op-ed was published in the Australian Financial Review on 8 February 2023.